Revision: Reconstitution of Partnership (Death of Partner) Accounts HSC Commerce (English Medium) 12th Standard Board Exam Maharashtra State Board

New Profit Share of remaining Partner = Old Profit Share + Profit Share Gained

New Profit Share = Existing (Old) Profit Share + Gained Profit Share (Share of Retired / Deceased Partner Taken)

New Profit-sharing Ratio = Old Profit - sharing Ratio

New Profit Share = Old Profit Share + Gained Profit Share

Gaining Ratio = Existing Profit - Sharing Ratio

Gain in Profit Share = New Ratio - Old Ratio

Gaining Profit Share = New Profit Share - Old Profit Share

(i) On Time Basis

\[\begin{aligned} & \text{Deceased Partner's Share of Profit} \\ & \text{} \\ & =\frac{\text{No.of Days or Months from the date of Last Balance Sheet till the date of Death}}{365\text{ Days or 12 Months}}\times{\text{Previous Year's Profit or Average Profit}}\times{\text{Profit Share of Deceased Partner}}
\end{aligned}\]

(ii) On the Basis of Turnover or Sales

\[\text{Deceased Partner's Share of Profit}=\begin{array}{ccc}\text{Sales till the date of death} \end{array}\times\begin{array}{cc}\text{Last Year's Profit Percentage}\end{array}\times\begin{array}{cc}\text{Profit Share of Deceased Partner }\end{array}\]

• On a partner’s death, the firm may continue with the remaining partners.
• The amount due is paid to the legal heirs or executor of the deceased partner.
• The deceased partner’s account is credited with capital, goodwill, reserves, revaluation profit, life policy, etc.
• It is debited with drawings, interest on drawings, revaluation loss, and accumulated losses.
• Profit up to the date of death is calculated on a time basis or turnover basis.

1. For a decrease in the value of assets : 

Revaluation A/c or Profit & Loss Adjustment A/c     ...Dr. 

           To Assets A/c

(Decrease in the value of assets) 

2. For an increase in the value of assets :

Assets A/c      ...Dr.

       To Revaluation A/c or Profit & Loss Adjustment A/c

(Increase in the value of assets) 

3. For an increase in the value of liabilities:

Revaluation A/c or Profit & Loss Adjustment A/c     ...Dr.

         To Liabilities A/c

(Increase in the value of liabilities) 

4. For a decrease in the value of liabilities : 

Liabilities A/c                          ...Dr.

      To Revaluation A/c or Profit & Loss Adjustment A/c

(Decrease in the value of liabilities)

5. For accounting unrecorded assets

Unrecorded Assets A/c          ...Dr.

       To Revaluation A/c

(accounting of unrecorded assets)

6. For accounting unrecorded liabilities

Revaluation A/c               ...Dr.

      To Unrecorded Liabilities A/c

(Accounting of unrecorded liabilities)

7. For transferring Gain (Profit):

Revaluation A/c              ...Dr.

     To Old Partner's Capital A/cs

(Gain on revaluation credited to Old Partner's Capital A/cs) 

8. For transferring loss: 

Old Partner's Capital A/cs       ...Dr.

      To Revaluation A/c

(Loss on revaluation debited to Old Partner's Capital A/cs)

                                             Deceased Partner's Capital Account

Dr.                                                                                                                                                                                         Cr.

Deceased Partner’s Capital A/c          ...Dr.

     To Deceased Partner’s Executor’s A/c

(Being the balance in the Capital Account transferred to the executor of the deceased partner)

A. Payment or Settlement of Amount Payable to the Deceased Partner:

1. When Payment is Made in Lump Sum:

Deceased Partner’s Executor’s A/c      ...Dr.

       To Bank A/c

2. When Payment is Made in Instalments:

(i) When Interest is Due on Outstanding Balance:

Interest A/c                 ...Dr.

      To Deceased Partner’s Executor’s A/c

(ii) When Instalment is Paid:

Deceased Partner’s Executor’s A/c      ...Dr.

       To Bank A/c

B. Share of Profit of the Deceased Partner:

1. When Profit Share is Estimated:

(i) If Profit-Sharing Ratio Does Not Change:

Profit & Loss Suspense A/c         ...Dr.

      To Deceased Partner’s Capital A/c

(ii) If Profit-Sharing Ratio Changes:

Continuing (Gaining) Partners’ Capital/Current A/cs     Dr.   [In Gaining Ratio]

       To Deceased Partner’s Capital A/c

C. When Loss is Estimated:

1. If Profit-Sharing Ratio Does Not Change:

Deceased Partner’s Capital A/c        ...Dr.

      To Profit & Loss Suspense A/c

2. If Profit-Sharing Ratio Changes:

Deceased Partner’s Capital A/c        ...Dr.

       To Continuing (Gaining) Partners’ Capital/Current A/cs   [In Gaining Ratio]

D. When Profit or Loss is Determined (Based on Interim Financial Statements):

1. In Case of Profit:

Profit & Loss Appropriation A/c       ...Dr.

      To Partners’ Capital A/cs                [In their Profit-Sharing Ratio]

2. In Case of Loss:

Partners’ Capital A/cs         ...Dr.     [In their Profit-Sharing Ratio]

       To Profit & Loss Appropriation A/c